1. Field of the Invention
Embodiments of the present invention relate to systems and methods for insurance underwriting. More particularly, embodiments of the present invention relate to systems and methods that integrate information from multiple online databases and create decision making advice useful to insurance underwriters.
2. Background Information
Underwriting is the process an insurance company uses to determine whether or not a potential customer is eligible for insurance, and the rate that that potential customer should pay for the insurance if eligible. The purpose of insurance underwriting is to spread risk among a pool of insured in a manner that is both fair to the customer and profitable for the insurer. Like other businesses, insurance companies need to make a profit. Therefore, it does not make sense for them to sell term insurance, for example, to everyone who applies for it. Although they do not want to make customers pay an excessively high rate, it is not wise for them to charge all their policyholders the same premium. Underwriting enables the company to “weed out” certain applicants and to charge the remaining applicants premiums that are commensurate with their level of risk.
Risk classification determines to a significant degree the premium a customer will pay for insurance. Four typical risk groups are: standard, preferred, substandard, and uninsurable. Each of these is explained below.
Standard risks: These are individuals who, according to the insurance company's underwriting standards, are entitled to term insurance without having to pay a rating surcharge or be subjected to policy restrictions.
Preferred risks: This group includes individuals whose mortality experience (i.e., life expectancy) as a group is expected to be above average and to whom the company offers a lower than standard rate. The most common preferred class today is nonsmokers, for whom many insurers now offer a favorable rate.
Substandard risks: These are individuals who, because of their health and/or other factors, cannot be expected (on average) to live as long as people who are not subject to these risk factors. Substandard applicants are insurable, but only at higher than standard rates that reflect the added risk. Policies issued to substandard applicants are referred to as rated or extra risk policies.
Uninsurable: These are applicants to whom the company refuses to sell term insurance because they are unwilling to shoulder the risks. They have decided that the risk factors associated with the applicant are too great or too numerous. In other cases, the applicant's circumstances may be so rare or unique that the company has no basis to arrive at a suitable premium.
An insurance company typically looks at a number of factors during the underwriting process in order to evaluate a potential customer in terms of risk. These factors enable the insurer to decide whether or not the potential customer is insurable. If the potential customer is insurable, these factors help place them into the appropriate risk group. Some of the factors considered are age, sex, current health/physical condition, personal health history, family health history, financial condition, personal habits/character, occupation, and hobbies.
An insurance company will gather information about potential customers from several sources. In the case of term insurance, the basic source of underwriting information is a completed customer application. The questions on the application are designed to give the insurer much of the information needed to make a decision. The company will then either reject an application, accept it and offer insurance at a certain rate, or seek additional information. In many cases, the company places great weight on the recommendations of a broker or insurance agent, particularly if the broker or agent has a good track record with the company. In some cases, an insurer may request a report from an independent company that specializes in the investigation of personal matters. This inspection report may provide the insurer with a wide range of personal information about a potential customer above and beyond what is on the application. In addition to an inspection report, the insurer may seek information on a potential customer from one of the cooperative information bureaus the insurance industry supports. The best known example is the Medical Information Bureau (MIB), which maintains centralized files on the physical condition of individuals who have applied for life insurance with member companies. In life insurance, one of the primary factors in assessing risk is an individual's health. Accordingly, it is no surprise that one of the most important sources of underwriting information is a physical exam. After examining a potential customer, a physician selected by the insurance company supplies the company with a detailed medical report. This report generally tells the company all it needs to know about the potential customer's present health.
The underwriting process is currently a manual process. It can involve numerous people including agents and doctors, and it can be very time-consuming. In view of the foregoing, it can be appreciated that a substantial need exists for systems and methods that can automate the underwriting process, improve decision-making, reduce the number of people involved and speed the overall process.